In a proportionate liquidating distribution in which the partnership is liquidated, Bill received cash of $120,000, inventory (basis of $6,000, fair market value of $8,000), and a capital asset (basis and fair market value of $16,000). Immediately before the distribution, Bill’s basis in the partnership interest was $90,000.

a. How much gain or loss will Bill recognize on the distribution?

b. What is Bill’s basis in the inventory and the capital asset?

CLUES:

a. Bill will recognize a gain to the extent cash distribution exceeds basis.

b. Cash distribution is greater than his basis so nothing left to allocate to other assets.

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